Despite lingering concerns about the Ukrainian crisis, markets picked up steam last week, giving the Dow and S&P 500 their best weekly performance since April. For the week, the S&P 500 grew 1.71%, the Dow gained 2.03%, and the Nasdaq rose 1.65%.[1. http://goo.gl/8DVnFZ]

Last week, headlines were largely dominated by the annual economic symposium in Jackson Hole that plays host to some of the world’s most powerful financial players. Though the format of the event is casual, central bankers, academics, and economists use the meeting to discuss important economic issues from the day.[2. http://www.economist.com/blogs/economist-explains/2014/08/economist-explains-12] One key session from this year’s meeting centered on labor market dynamics.

Economic research suggests that the U.S. labor market is not as flexible as it once was and that the fluidity of workers between jobs is falling. According to results presented at Jackson Hole, factors like an aging workforce that is less likely to change jobs, higher training and regulatory requirements to take many positions, and dominant firms driving others out of business, are all contributing to the problem. Why does this fluidity matter?

Part of what makes a labor market strong is the ability for workers to transition between jobs and industries as needs and conditions change. Across industries, researchers found a decline of about 25% in the rate at which jobs were created and eliminated between 1990 and 2013. The implications of this decline could be particularly serious for the young or the less skilled, who may struggle to find jobs or progress in their careers.[3. http://www.reuters.com/article/2014/08/22/us-usa-fed-employment-idUSKBN0GM0WM20140822]

Federal Reserve Chair Janet Yellen seems to support this view, painting a picture of a still-fragile labor market that requires accommodative monetary policy in her speech Friday. In another big speech, European Central Bank President Mario Draghi stated that the ECB stands ready to provide further liquidity to boost the EU’s sluggish economy.[4. http://www.cnbc.com/id/101939954]

Jobless claims fall. Weekly new unemployment claims fell more than expected, dropping below 300,000. While weekly data is volatile, there were no seasonal factors affecting the data, pointing to sustained improvement in the labor market.[7. http://www.cnbc.com/id/101936663]

Despite a late-week selloff due to renewed concerns about the situation in Ukraine, the major indices ended the week on a positive note. For the week, the S&P 500 gained 1.22%, the Dow grew 0.66%, and the Nasdaq added 2.15%.[1. http://goo.gl/joLJDT]

Geopolitical tensions in Europe ratcheted up when Ukrainian forces engaged an armored Russian column that crossed the border. Russia denies that any military vehicles entered Ukraine and that the mission was humanitarian. Although the full picture has yet to emerge, investors are worried that the engagement may cause further escalation of tensions.[2. http://www.cnbc.com/id/101906428]

Retail sales slumped in July as consumers took a break from buying automobiles. However, with employment growth on a steady upward trend, economists think that sales will likely rebound later in the quarter.[3. http://www.reuters.com/article/2014/08/13/us-economy-retail-idUSKBN0GD14320140813] The weak retail data begs the question: How are U.S. retailers doing? Not so well, it turns out. Overall, many retailers are suffering from low consumer demand and low margins in an intensely competitive promotional environment. Online retailers like Amazon have forced competitors to lower prices and offer special discounts, eroding margins and hurting earnings.[4. http://www.zacks.com/stock/news/144048/why-retail-sector-woes-continue]

Low-cost retailers like Wal-Mart (WMT) and Family Dollar are also struggling, mirroring the economic struggles of their largely working-class customers. Many low-income consumers have yet to fully recover from the financial crisis and stagnant wage growth is limiting their buying power. Though its overall Q2 earnings were respectable, Wal-Mart slashed its forward guidance, indicating that the giant is mired in a nationwide slowdown.[5. http://www.corvuswire.com/us-news/walmart-announces-earnings-hugely-negative-forward-guidance/3490/]

This week, investors will be focusing on the release of the Federal Reserve Open Market Committee meeting minutes on Wednesday, as well as a major gathering of central bank leaders in Jackson Hole, Wyoming. Fed chair Janet Yellen and embattled European Central Bank President Mario Draghi will both speak at the meeting.[6. http://www.cnbc.com/id/101922670] Given Europe’s weak Q2 economic results, investors will be waiting to see whether Draghi has the stomach to step in with stronger quantitative easing strategies.

Jobless claims tick upward to six-week high. Applications for unemployment benefits climbed slightly last week, interrupting the positive trend we’ve seen the last few weeks, though most economists still think employment trends are moving in the right direction. Weekly data is often noisy, and economists prefer to look at longer-term trends.[7. http://www.bloomberg.com/news/2014-08-14/jobless-claims-in-u-s-rise-more-than-forecast-to-six-week-high.html]

EU economic growth fades. Economic activity in the Eurozone slowed in the second quarter as Germany’s economy slid into reverse and France stagnated. Economists’ worry that sanctions against Russia will damage the fragile EU recovery, putting more pressure on Europe’s economic recovery.[8. http://www.reuters.com/article/2014/08/14/us-eurozone-economy-idUSKBN0GE0J220140814]

Low doc loans return. So-called “stated income” mortgages are returning as lenders chase applications that they can no longer afford to ignore. These mortgages, which allow applicants to show bank statements instead of pay stubs or tax returns may help expand the pool of mortgage applicants as lending volume falls.[9. http://www.reuters.com/article/2014/08/14/us-usa-banks-loans-analysis-idUSKBN0GE09Z20140814]

Consumer sentiment falls, but the news isn’t all bad. Sentiment among U.S. consumers fell to its lowest level since last November, but a gauge of current economic conditions remains positive. While lowered sentiment could threaten demand, economists believe consumer spending could still grow this year.[10. http://www.cnbc.com/id/101922730]

Markets snapped their winning streak and ended the week down slightly as investors decided to take some profits off the table. The light economic calendar led to sluggish activity since investors were reluctant to commit to positions without new data to bolster their analysis. For the week, the S&P 500 lost 0.68%, the Dow fell 0.88%, and the Nasdaq slid 0.25%.[1. http://goo.gl/AjXO3V].

Geopolitics took center stage last week when Iraqi insurgents captured Mosul and Tikrit, major cities in northern Iraq, and advanced toward Baghdad. In response to the threat, the U.S. moved a carrier group into the Persian Gulf to support the government in Baghdad. Analysts are worried about how instability in Iraq might affect global oil markets. U.S. crude oil rose to nearly $105/barrel on the new security fears.[2. http://www.cnbc.com/id/101749557 ] Iraq is an important Organization of the Petroleum Exporting Countries (OPEC) producer and disruptions in regional supplies could send oil prices through the roof and throttle consumer spending.[3. http://www.cnbc.com/id/101760320]

In Ukraine, the ongoing conflict escalated when well-armed pro-Russia separatists shot down a Ukrainian military plane. Russia and Ukraine have been caught in a standoff since March, when Russia annexed Crimea. European leaders spoke with Ukrainian and Russian officials about the incident, stressing the need for a cease-fire in eastern Ukraine and a return to stability.[4. http://www.cnn.com/2014/06/14/world/europe/ukraine-crisis/] EU countries rely on natural gas supplies that pass through Ukraine, and interruptions could cause price spikes and temper much-needed economic growth in Europe.

HEADLINES:
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Detroit bond settlement reached. Bankruptcy court mediators announced that a settlement had been reached between the City of Detroit and bondholders over the treatment of unsecured general obligation bonds. Although final details have not been released, it is likely that bondholders will receive only a percentage of their principal, though bond insurers may make up some of the difference.[8. http://www.reuters.com/article/2014/06/13/us-usa-detroit-bankruptcy-bonds-idUSKBN0EO2O820140613]

Would you pay more in taxes to fix your roads? The brutal winter has taken a toll on roads across America and federal maintenance dollars are coming up short. A recent AAA survey found that two-thirds of respondents would be willing to take a tax hike or pay more at the pump to improve roads.[11. http://www.cnbc.com/id/101750499]

Fed Chair Janet Yellen spoke before the House and Senate about the state of the economy. Her testimony was mostly upbeat and she reassured lawmakers that economic activity should pick up speed after the slow first quarter. However, she expressed concern about weakness in the housing sector and indicated that Fed economists will be watching the sector closely in the coming months. Despite housing sector worries, the Fed will continue to pare back bond purchases and still plans to wrap up current quantitative easing programs by this Fall.[4. http://www.marketwatch.com/story/yellen-stays-upbeat-but-is-watching-housing-2014-05-07 ]

Ukraine is slipping closer to civil war as pro-Russian separatists in Eastern Ukraine move ahead with a disputed referendum on self-rule. Though Russia denies any role in the escalating conflict, Western leaders fear that Russia is funding rebels in order to absorb the Russian-speaking eastern portions of Ukraine.[5. http://www.cnbc.com/id/101661911 ] On the positive side, Russian President Vladimir Putin seems reluctant to engage in a showdown with the West by sending in troops. A destabilized Ukraine could lead to disruptions to natural gas supplies and other economic damage in Europe.

The week ahead is packed with important economic data, and analysts will be closely watching retail sales and business inventory numbers as well as the next consumer sentiment report to get a feel for how strong demand is in the second quarter. Though housing data is still expected to be weak, analysts are hopeful that warmer weather will boost activity.

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Mortgage applications rise. After weeks of lethargy, mortgage markets picked up as loan applications rose. Total mortgage volume rose on a surge of home buying activity spurred by lower interest rates and continued job market growth.[8. http://www.cnbc.com/id/101648399 ]

Cash deals rule in housing market. High demand and low supply are forcing homebuyers to get competitive with all-cash offers, which accounted for 43% of total home sales in the first quarter. Strict lending standards have reduced the opportunities for many traditional homebuyers and given investors a competitive edge.[9. http://www.cnbc.com/id/101654929 ]